With the media and marketing ecosystem changing and becoming more complex day by day, it’s increasingly challenging for CFOs to keep up with innovations in the advertising space. These include innovations in advertising formats, innovations in media trading, and innovations in how agency partners charge for their services.
In recent articles for Accountancy Today, we’ve looked at how CFOs can help their marketing colleagues to drive transparency in the media supply chain. We’ve considered why advertisers should look beyond the Big Four audit companies when looking to appoint a specialist in media for contract compliance auditing. And we’ve detailed the steps that CFOs should take to ensure that brands receive the media rebates owing to them from their agency partners.
As we step into the new decade, it seems like a smart time to focus CFOs’ attention on a practice almost as old as media trading itself, a practice that threatens to reduce the efficiency with which brands buy and plan media. The practice is agencies not passing back unbilled media. Unbilled media is media for which advertisers pay their media agency partners but for which the media agency does not get billed – or has only been billed in part – by the media supplier.
It’s an anomaly of the media trading system that the amount brands spend on media via agency partners and the amount vendors charge agencies can be different. Where figures differ, this can be in favour of the agency. Those selling media include publishers, media owners, sales houses, and – increasingly – advertising technology platforms; Google and YouTube, Facebook, and Amazon.
Unbilled media is nothing new, however, it occurs in all media channels, including TV, press, out-of-home, cinema, radio, and digital. In recent years, brands have noticed that unbilled media can be more common for digital because digital campaigns often depend upon more, smaller transactions. This means that unbilled media costs can add up quicker because of the higher number of transactions than say a TV campaign. But CFOs should be alert to unbilled media across all channels.
Billing for what might be invoiced
Many agencies bill their clients for the full cost of the media space they have booked on their clients’ behalf even if media vendors don’t actually bill them for that full value. They do this just in case media vendors invoice them for the planned cost at some time in the future. In most markets, there’s a statute of limitations for invoices of between six and ten years; in theory, vendors could choose to bill agencies for up to a decade after the original order was put in. That’s why, agencies argue, they should hold onto their clients’ money for that long, as they could, potentially, be liable for the debt.
The trouble is, after a certain period (typically the financial year end), if the media is not invoiced by the vendor, it is unlikely ever to be billed. In this way, agencies can end up making additional profit, often of around 3-5% of total media billings, by not returning outstanding unbilled media to their advertiser clients. This results in an increase in agency revenues and potentially threatens media efficiency and effectiveness for advertisers, as this unspent money is not reinvested in advertising. What’s more, during the years that agencies typically hold on to unbilled media funds, many brand teams change personnel, many advertisers change agency, and unbilled media tend to get forgotten.
The reality is that media vendors very rarely do come back to agencies to claim for unbilled media, and particularly not several years after the media transaction took place. It’s uncommon for retrospective claims for unbilled media to be made once media vendors’ annual run of transactions have been audited and signed off by their own statutory auditors. This renders the “statute of limitations” argument redundant. Media vendors are, by and large, skilled at billing agencies what they believe to be the right amount in the right financial year.
CFOs should work with their marketing and procurement colleagues to minimise the impact of unbilled media costs and prevent them from biting a significant chunk out of media budgets. To do this, advertisers should agree with agency partners to pay for only the media space that media vendors actually have actually billed the agency – not what might be billed. They should work together to reconcile billed and unbilled media regularly, to prevent unbilled media pots building up in agency accounts. And they should regularly review the contracts with their agencies and include terms that see unbilled media costs returned to them. At the same time, they should agree to indemnify the agency for any potential future billings. Much better to do it that way round, than to set aside potential media funds and allow them to accumulate in agency accounts over time.
Stephen Broderick is Global CEO of FirmDecisions